Divorcing couples often say that the list of disagreements to resolve never seems to end. Some couples go to war over everything… but taking care of the finances of education is one of the conflicts that can get surprisingly ugly.
The choice of school between K-12 public school versus private school or public college versus private college can be a minefield. For many, the root of the disagreement has to do with what they think is best for their children and how to fund it.
For example, even if you think private school is best for your child, the biggest hurdle for most parents is cost. Private K-12 schools can cost as much as $ 25,000 to $ 65,000 per year, rivaling the cost of college! And while some may dismiss the question, seeing the cost of private school as a first world problem, and not necessary, there are many situations where private school may be in the best interests of the child. What happens to children who have attended private school all their lives and thrive socially and academically, and are torn apart because their divorced adults cannot agree on who will foot the bill for future fees? of education? Or the child who was matched to a specific school due to learning differences, who is now thriving with that extra support and not yet ready to return to a mainstream educational environment?
Even public school bills can pile up when you factor in increasing spending on school supplies, lunches, field trips, teacher vacations and year-end gifts, as well as PTA fundraisers with admission tickets. sometimes exceeding $ 100 each! The cost of public schooling to parents continues to rise as local school districts face smaller amounts of government funding per student and must maintain academic excellence with a steadily shrinking budget. These costs may not approach the level of private school expenses, but they can still create hardship for families.
Once your young student is on the verge of graduating from high school, college financial issues are looming. According to the College Board, while the median price of tuition and fees for full-time students attending private four-year nonprofit institutions in 2018-19 is $ 36,890, 20% of students attend establishments charging $ 51,000 or more. The state’s public colleges are more affordable, but their price is still high. The published average price of tuition and fees at four-year public institutions increased by 7%, to reach $ 10,230 in 2018-19. These estimates do not include accommodation, meal plans, books, supplies, transportation, and other expenses that a student may incur, which can add up to tens of thousands of dollars more.
Barton LLP’s marriage attorney, Orrit Hershkovitz, shares that “Some divorce agreements expressly limit the amount a parent is required to contribute to a child’s college education. One such provision, known in New York City as the “SUNY cap,” limits the college’s obligation to the amount it or would have to pay if the child attended a state-funded public school in the system. New York State University (SUNY), as opposed to a private, non-state-funded college.
Whether or not the divorce agreement includes such a limitation, it should clarify whether both parents must consent to college selection. It is also advisable that the agreement clarify whether the parent who is obligated to pay child support has the right to withhold consent to enroll a child in private college for financial (or other) reasons. If the agreement is silent on either issue, a parent could be required to contribute to a child’s college expenses despite opposing the child’s choice of college. In this case, the contribution could be limited to the “SUNY cap” if the agreement so provides. Otherwise, the parent could be required to contribute to the child’s university expenses according to their financial capacity, Hershkovitz says.
Divorced parents can use 529 savings plans to help defray school fees. Each state offers its own 529 plan with various investment options, and some states even add the added bonus of making your contributions tax deductible up to certain limits. The SavingForCollege.com site is a great resource for those who want to compare investment options between state plans. Keep in mind that the fees for each state’s 529 plan also vary.
A 529 plan is one of the only accounts that offer tax-free growth! If you think your child might qualify for a full ride or might not use all of the funds, continue to contribute. In the case of a scholarship, distributions up to the amount of the non-taxable scholarship will not be subject to the 10% penalty tax, although the income portion is still subject to income tax. Other simple options include changing the beneficiary for another eligible child or family member, transferring funds to yourself for your own continuing education, or saving funds for a future grandchild.
Contributions to 529 plans may also qualify for an annual state tax deduction for contributions of up to $ 5,000 ($ 10,000 if you are married and filing jointly) per year. However, not all states have adopted this favorable tax treatment. For example, contributions to the California and Florida 529 Plan are not tax deductible on state income tax returns. On the positive side, 529 plans have recently improved thanks to the Tax Cuts and Jobs Act. These plans can now be used to fund qualifying expenses for private schools K-12 to the tune of $ 10,000 per year per beneficiary.
Even if you have money in reserve in a 529 plan, don’t count on the possibility of financial aid. Education savings plans, like the 529 plan, held in the adult’s name (with the child named as beneficiary) are only valued up to 5.6% of the account value when determining the amount. need financial help. Up to $ 9,400 of the account value falls under the asset protection allowance and does not count towards financial assistance at all. If a parent’s 529 account exceeds their asset protection allowance by $ 10,000, their child’s financial assistance could be reduced by $ 564. Any loss of financial assistance is disappointing; However, the loss is paltry compared to the remarkable tax-free investment gains you earned in your 529 account.
One of the biggest mistakes a student can make is not completing the Free Federal Student Aid (FAFSA) application form. Regardless of your family’s income level or net worth, it never hurts to apply. You might be surprised at what you get, especially from a small private university. More than a third of high school graduates did not complete the form in 2018, personal finance website NerdWallet recently found, leaving about $ 2.6 billion in free money for colleges.
Only the custodial parent is required to file the FAFSA. Typically, the student will receive more financial assistance if the custodial parent completing the forms is also the parent with lower income and assets. There are definitely planning opportunities here!
The owner of a 529 Education Savings Plan can choose to make distributions from the 529 Plan at any time. Nothing prevents this parent from draining the 529 plan account and leaving the children to fend for themselves to pay for their education.
If one parent does not trust the other parent, they can demand a transfer of 529 funds to a new (or existing) 529 account in their name and designate the child as beneficiary. The divorce agreement should also place restrictions on how funds can or cannot be used, and require that the parent who is not the owner of the account receive monthly “stakeholder” statements from the provider. plan account 529. Hershkovitz states, “Before signing a divorce agreement that provides for the application of 529 funds to a child’s education expenses, the parent who is not the account holder must confirm that the other parent did not withdraw 529 funds for non-educational purposes prior to the execution of the agreement. “
It is imperative that you develop a plan to pay for college education as part of your divorce to ensure that your children get the educational opportunities they deserve. While there are many issues on your list to resolve in a divorce, college expenses and savings should be top of the list.